An innovation leaders fund modeling the link to growth - feb 2013


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An innovation leaders fund modeling the link to growth - feb 2013

  1. 1. AN  INNOVATION  LEADERS  FUND   Modeling  the  Link  Between  Innova3on  Leadership   and  Sustained  Stock  Price  Growth     5  February  2013    WWW.INNOVATIONLEADERS.ORG Copyright Innovation Leaders
  2. 2. This  document  details  the  modeling  of  a  fund  of  companies   idenGfied  as  InnovaGon  Leaders  over  the  past  ten  years     Five  key  areas  are  addressed:   1.  ExecuGve  Summary   2.  The  InnovaGon  Leaders  Analysis           3.  Modeling  an  InnovaGon  Leaders  Fund         4.  Case  Studies  of  Sample  Companies     5.  Conclusions  and  Investment  Opportunity                          WWW.INNOVATIONLEADERS.ORG 2  
  3. 3. 1  ExecuGve  Summary  WWW.INNOVATIONLEADERS.ORG 3  
  4. 4. Ten  years’  analysis  of  1500  companies  shows  a  clear  link   between  innovaGon  leadership  and  sustained  stock  growth   •  Since  2002,  the  InnovaGon  Leaders  analysis  has  idenGfied  the  world’s  most  innovaGve   companies  across  25  sectors   •  We  have  developed  a  sector-­‐specific  model  that  looks  at  a  raGo  of  innovaGon  impact  to   the  resources  being  deployed   •  We  have  shown  a  direct  correlaGon  between  effecGve  innovaGon  capability  and   sustained  stock  growth     •  We  have  modeled  how  an  InnovaGon  Leaders  porWolio  would  have  performed  as  an   investment  fund  over  the  past  ten  years,  and  found  that  it  would  have  consistently   outperformed  major  indices   •  If  the  InnovaGon  Leaders  porWolio  had  been  a  fund,  it  would  provide  a  compelling  mix   of  outperformance,  high  liquidity  and  low  risk  WWW.INNOVATIONLEADERS.ORG 4  
  5. 5. 2  The  InnovaGon  Leaders  Analysis  WWW.INNOVATIONLEADERS.ORG 5  
  6. 6. For  the  past  decade  we  have  been  idenGfying  and  profiling   the  worlds  most  innovaGve  companies  across  25  sectors   Our  published  analysis  supports  the  well-­‐established  view  that  effec3ve  innova3on  delivers  higher  organic  growth  WWW.INNOVATIONLEADERS.ORG 6  
  7. 7. There  has  also  been  increased  aZenGon  within  the  finance   and  investment  community  on  innovaGon-­‐driven  growth   Growing  Range  of  Analysis:   •  Business  Week  /  BCG  ‘Most  InnovaGve  Companies’  analysis  since  2006   •  Forbes  ‘The  World’s  Most  InnovaGve  Companies’  since  2011   •  Thompson  Reuters  ‘Top  100  Global  Innovators’  since  2011   Plus  Some  InnovaGon  Focused  Funds:   •  IQ  Intangible  Assets  Indexes  including  innovaGon  leadership   •  Rose  Park  Advisors  investments  focused  on  disrupGve  innovaGon  WWW.INNOVATIONLEADERS.ORG 7  
  8. 8. Most  now  recognize  that  innovaGon  can  both  take  many   different  forms  and  result  in  a  wide  range  of  impacts  Tradi3onal   Tangible   Types  of  InnovaGon   Example  InnovaGon  Impacts   Product Innovation Increased Sales Technological Innovation Higher Margins Service Innovation Enhanced Brand Value Process Innovation Attractive Culture for Talent Business Model Innovation New Ways of WorkingEmerging   Intangible   We are looking for a direct correlation between effective innovation capability and sustained corporate growth WWW.INNOVATIONLEADERS.ORG 8  
  9. 9. The  underlying  dynamics  for  sustained  innovaGon-­‐driven   growth  vary  significantly  from  sector  to  sector   Sector   Example  Innova3on  Value  Drivers       •  Airlines   •  Increasing  average  revenue  per  seat  and  per  journey   •  Consumer  Electronics   •  Producing  compelling  integrated  product  soluGons   •  Energy   •  OpGmizing  E&P  efficiency  to  maximize  reserves  access   •  Fashion  Retail   •  Rapid  delivery  of  on-­‐trend  product  with  minimal  sale  stock   •  Hotels  and  Leisure   •  CreaGng  guest  experiences  that  raise  revenue  per  room   •  General  Retail   •  Decoupling  margin  growth  from  size  of  retail  space   •  PharmaceuGcals   •  Reducing  failure  rates  for  access  to  new  molecules   •  Telecom  Operators   •  Increasing  average  margins  from  data  use  per  connecGon   While there are many common elements, recognizing the different nature of innovation per sector is vitalWWW.INNOVATIONLEADERS.ORG 9  
  10. 10. At  the  core  of  our  analysis,  for  each  sector,  we  look  at  a   raGo  of  innovaGon  impact  to  the  resources  being  deployed   InnovaGon  Input   Company   InnovaGon  Output   InnovaGon     CapabiliGes   Each  assessment  is  based  on  a  core  raGo:  InnovaGon  Output         InnovaGon  Input     We  use  a  proprietary  model  based  on  different  sector  weighGngs  and  raGos  of  a   number  of  key  publicly  available  data  including:   R&D  Intensity  OperaGng  margins  per  customer   Revenue  /  employee  5yr  patent  trends   Plus  sector-­‐specific  data  such  as  Gme  to  market,  successful  product  launches  etc.     This provides what we believe to be the most accurate assessment of current innovation impactWWW.INNOVATIONLEADERS.ORG 10  
  11. 11. We  assess  25  sectors  where  innovaGon  has  demonstrated   impact  and  detail  key  successes  in  the  different  industries    The  25  Included  Sectors   Excluded  Aerospace   IT  Services  (Tech  Sohware  and  Services)   Basic  Resources  Airlines   LogisGcs  (Industrial  TransportaGon)   ConstrucGon  and  Materials  AutomoGve  (Automobiles  and  Parts)   Media  and  Entertainment  (Media)   Financial  General  Chemicals   Medical  Equipment  (Healthcare  Equipment)   Industrial  Engineering  Consumer  Electronics  (Electronics  and  Electrical)   Office  Products   Industrial  General  Energy  (Oil  and  Gas)   PharmaceuGcals   Mining  Fashion  Retail  (Retailers)   Retail  Banking  (Banks)   Real  Estate  Food  and  Drink  (Food  and  Beverages)   Sohware   Tobacco   Sports  Goods  (Household  Leisure  and  Personal)   UGliGes  General  Retail  (Retailers)   Telecom  Equipment  (Tech  Hardware)    Hotels  and  Leisure  (Travel  and  Leisure)   Telecom  Operators  (TelecommunicaGons)  Household  Goods  (Leisure  and  Personal  Goods)   Toys  and  Games  (Household  Leisure  and  Personal)  Insurance  IT  Hardware  (Tech  Hardware)  Growth in sectors such as mining, utilities and construction is driven more by economic demand than innovation WWW.INNOVATIONLEADERS.ORG 11  
  12. 12. Our  model  analyses  the  1500  largest  companies  in  these   sectors  and  systemaGcally  selects  the  top  innovators   25  Sectors   75   25  Innova2on   1500  Companies   Companies   Leaders  25  most  innova2on-­‐ Largest  companies   Top  3  companies     Single  company  for   focused  sectors   across  25  sectors   per  sector   each  sector   Quan2ta2ve  Analysis  Throughout  Process   WWW.INNOVATIONLEADERS.ORG 12  
  13. 13. The  idenGfied  InnovaGon  Leaders  in  2012  include  a  mix  of   established  household  names  and  emerging  companies   Consumer   Fashion   Food  and   General   Hotels  and   Household  Aerospace   Airlines   AutomoGve   Chemicals   Energy   Insurance   Electronics   Retail   Drink   Retail   Leisure   Goods   ReckiU  Rolls  Royce   LuKhansa   BMW   BASF   Apple   Chevron   Inditex     Nestle   Amazon   Starwood   Humana   Benckiser   IT   Media  and   Medical   Office   Retail   Sports   Telecom   Telecom   Toys  and   IT  Services   LogisGcs   Pharma   Sohware   Hardware   Entertain.   Devices   Products   Banking   Goods   Equipment   Operators   Games   Bhar2   ARM   IBM   UPS   Google   Medtronic   Canon   Roche   ICICI  Bank   MicrosoK   Nike   Qualcomm   LEGO   Airtel     WWW.INNOVATIONLEADERS.ORG 13  
  14. 14. The  annual  InnovaGon  Leaders  results  since  2002  have  been   published  in  books  and  via  the  innovaGon  leaders  website   Sector   2012   2011   2010   2009   2008   2007   2006   2005   2004   2003   2002  Aerospace   Rolls  Royce   Rolls  Royce   Rolls  Royce   Rolls  Royce   Boeing   Rolls  Royce   Rolls  Royce   Honeywell   Rolls  Royce   EADS   Honeywell  Airlines   LuKhansa   Air  New  Zealand   Air  New  Zealand   Virgin  Atlan2c   Virgin  Atlan2c   Virgin  Atlan2c   Virgin  Atlan2c   Virgin  Atlan2c   Singapore  Airlines   Singapore  Airlines   Singapore  Airlines  Automo2ve   BMW   BMW   Renault   Tata  Motors   BMW   Toyota   Toyota   Toyota   Honda   Honda   Honda  Chemicals   BASF   BASF   BASF   BASF   BASF   Dow   DSM   DSM   BASF   Dow   Dow  Consumer  Electronics   Apple   Apple   Apple   Apple   Samsung  Electronics   Samsung  Electronics   Samsung  Electronics   Samsung  Electronics   Samsung  Electronics   Samsung  Electronics   Sony  Energy   Chevron   Shell   Chevron   Statoil   Shell   Shell   BP   BP   BP   BP   BP  Fashion  Retail   Inditex   Inditex   Inditex   Inditex   H&M   H&M   H&M   H&M   H&M   H&M   Inditex  Food  and  Drink   Nestle   Nestle   Nestle   Nestle   PepsiCo   Nestle   PepsiCo   PepsiCo   Danone   Nestle   Nestle  General  Retail   Amazon   Amazon   Amazon   Amazon   WalMart   Tesco   IKEA   Tesco   Tesco   Tesco   Tesco  Hotels  and  Leisure   Starwood   Starwood   Starwood   Starwood   Starwood   Starwood   Starwood   Starwood   Starwood   Starwood   Starwood  Household  Goods   ReckiU  Benckiser   ReckiU  Benckiser   ReckiU  Benckiser   ReckiU  Benckiser   ReckiU  Benckiser   ReckiU  Benckiser   ReckiU  Benckiser   ReckiU  Benckiser   P&G   Kimberley  Clark   P&G  Insurance   Humana   AON   Humana   Humana   Aviva   Allianz   Allianz   Allianz   AEGON   Pruden2al   Pruden2al  IT  Hardware   ARM   ARM   ARM   ARM   Apple   Apple   Apple   Logitech   Apple   AMD   AMD  IT  Services   IBM   Infosys   IBM   IBM   Infosys   IBM   Wipro   Infosys   IBM   Infosys   IBM  Logis2cs   UPS   UPS   UPS   UPS   UPS   UPS   UPS   UPS   Federal  Express   Federal  Express   Federal  Express  Media  and  Entertainment   Google   Disney   Disney   Disney   Google   Google   Google   Time  Warner   Disney   Disney   Disney  Medical  Devices   Medtronic   Stryker   Stryker   St  Jude  Medical   Medtronic   Medtronic   Medtronic   Medtronic   Medtronic   Medtronic   Becton  Dickenson  Office  Products   Canon   Canon   Canon   Canon   Canon   HewleU  Packard   Canon   Canon   HewleU  Packard   Canon   Canon  Pharmaceu2cals   Roche   Novo  Nordisk   Novo  Nordisk   Novo  Nordisk   Lilly   Novar2s   Novar2s   Novo  Nordisk   Novo  Nordisk   Novo  Nordisk   Merck  Retail  Banking   ICICI  Bank   Santander   Santander   Santander   Handelsbanken   Handelsbanken   Santander   RBS   HSBC   Bank  of  America   Bank  of  America  SoKware   MicrosoK   Google   Google   Google   MicrosoK   MicrosoK   MicrosoK   MicrosoK   Adobe   Adobe   Adobe  Sports  Goods   Nike   Nike   Nike   Nike   Adidas   Adidas   Adidas   Adidas   Nike   Nike   Nike  Telecom  Equipment   Qualcomm   Juniper   Qualcomm   Qualcomm   Nokia   Nokia   Nokia   Nokia   Qualcomm   Qualcomm   Qualcomm  Telecom  Operators   Bhar2  Airtel   Bhar2  Airtel   Bhar2  Airtel   Bhar2  Airtel   Telefonica   NTT  DoCoMo   Vodafone   NTT  DoCoMo   NTT  DoCoMo   NTT  DoCoMo   Vodafone  Toys  and  Games   LEGO   LEGO   LEGO   LEGO   LEGO   Nintendo   Nintendo   Nintendo   Nintendo   Nintendo   Nintendo   WWW.INNOVATIONLEADERS.ORG 14  
  15. 15. 3  Modeling  an  InnovaGon  Leaders  Fund  WWW.INNOVATIONLEADERS.ORG 15  
  16. 16. Interest  from  investors  in  the  InnovaGon  Leaders  analysis   raised  several  quesGons  about  a  potenGal  fund  model   QuesGons  raised  by  companies,  investors  and  fund  managers  included:   •  If  companies  outperform  peers  on  innovaGon,  how  does  this  impact  value?   •  Can  you  prove  the  claimed  link  between  innovaGon  and  organic  growth?   •  If  one  had  invested  in  these  companies  what  would  have  been  overall  returns?   •  How  would  these  investment  have  performed  throughout  economic  cycles?   •  How  would  this  performance  compare  to  sector  and  cross-­‐sector  indices?   •  What  companies  /  sectors  would  account  for  the  greatest  contribuGon?   •  Could  this  analysis  be  the  basis  of  a  growth  investment  fund?   •  If  so  what  would  have  been  the  key  performance  results  of  such  a  fund?   The following pages detail the approach taken to model this and the results of the analysisWWW.INNOVATIONLEADERS.ORG 16  
  17. 17. We  have  modeled  how  ten  years  of  an  InnovaGon  Leaders   porWolio  would  have  performed  as  an  investment  fund   Models  have  been  created  that  show  the  performance  of  a  fund  based  on:   •  InvesGng  in  the  most  innovaGve  company  per  sector  each  year   •  Holding  these  stocks  for  2  years  before  rebalancing  the  porWolio   •  ReinvesGng  all  capital  and  profits  at  then  end  of  each  2-­‐year  hold  period   Key  assumpGons  made  in  the  modeling  include:   •  Equal  value  investments  made  iniGally  in  all  companies  in  order  to  limit   exposure  to  any  one  high  or  low  performing  stock  or  sector   •  Analysis  is  independent  of  current  stock  prices  and  short-­‐term  market   fluctuaGons     We have used only the published results of the innovation leaders analysis for stock selectionWWW.INNOVATIONLEADERS.ORG 17  
  18. 18. We  assume  an  average  two  year  innovaGon-­‐to-­‐impact   period  so  are  looking  upstream  of  most  assessments   Time  to  Market   InnovaGon   InnovaGon   AcGvity   Impact  on  Business     Time  to  Market  (TTM)  varies  across  different  sectors:   e.g.     Fashion  /  Sohware   1  year     Consumer  electronics  /  Food  and  Drink  /  Household  Goods   18  Months     Telecoms  /  Office  Equipment                           2-­‐3  years     Aerospace  /  AutomoGve  /  Energy  /  PharmaceuGcals   5  years    Many  experts  consulted  see  that  2  years  TTM  is  an  average  across  all  25  sectors;  for   simplicity,  we  use  this  as  the  average  Gme  for  innovaGon  to  lead  to  stock  price  impact     This model is therefore focused on activity within companies 2 years ahead of most other analysisWWW.INNOVATIONLEADERS.ORG 18  
  19. 19. A  back-­‐test  of  the  InnovaGon  Leaders  Fund  against  S&P  500   shows  a  clear  outperformance  over  the  past  ten  years     Compound  Annual  Growth  Rate:  14.5%,  Std  Dev:  19.7%,  Alpha:  12.1%,  Beta:  0.7   A  value  of  315  indicates  that  the  pordolio  has  reached  415%  of  its  ini2al  value.  WWW.INNOVATIONLEADERS.ORG 19  
  20. 20. Throughout  the  past  decade  an  InnovaGon  Leaders  Fund   would  have  consistently  outperformed  major  indices   Year   ILF   MSCI  Global   S&P500  TR   NASDAQ   FTSE   2002   (15%)   (20%)   (22%)   (28%)   (25%)   2003   37%   34%   29%   50%   14%   2004   31%   15%   11%   9%   8%   2005   15%   10%   5%   1%   17%   2006   26%   21%   16%   10%   11%   2007   25%   10%   5%   10%   4%   2008   (40%)   (40%)   (37%)   (41%)   (31%)   2009   54%   31%   26%   44%   22%   2010   31%   12%   15%   17%   9%   2011   1%   (5%)   2%   (2%)   (6%)   2012   21%   6%   9%   13%   0%   10  Yr  Average   17%   9%   8%   11%   5%   3  Yr  Average   19%   5%   9%   9%   1%  WWW.INNOVATIONLEADERS.ORG 20  
  21. 21. On  a  quarterly  basis  over  the  past  decade,  the  modeled   fund  would  have  shown  well  above-­‐average  returns   Annual     Year   Quarter  1   Quarter  2   Quarter  3   Quarter  4   Total   2002   (9%)   (13%)   7%   (15%)   2003   (2%)   13%   11%   12%   37%   2004   7%   4%   4%   13%   31%   2005   0%   (2%)   10%   7%   15%   2006   6%   0%   6%   12%   26%   2007   3%   10%   8%   3%   25%   2008   (8%)   (5%)   (15%)   (19%)   (40%)   2009   (7%)   25%   17%   13%   54%   2010   7%   (10%)   24%   11%   31%   2011   6%   4%   (16%)   9%   1%   2012   15%   (7%)   9%   21%   Average   2%   2%   4%   7%   14%  WWW.INNOVATIONLEADERS.ORG 21  
  22. 22. The  analysis  also  shows  that  the  average  hold  period  of  two   years  is  indeed  opGmal   4.50# PerformanceandHoldingPeriods 4.00# 3.50# FactorofIni,alILFValue 3.00# Holding# Periods# 2.50# 1)Year# 2)Year# 2.00# 3)Year# 1.50# 4)Year# 1.00# 0.50# 0.00# 1)Aug)02# 1)Dec)02# 1)Aug)03# 1)Dec)03# 1)Aug)04# 1)Dec)04# 1)Apr)05# 1)Aug)05# 1)Dec)05# 1)Aug)06# 1)Dec)06# 1)Apr)07# 1)Aug)07# 1)Dec)07# 1)Apr)08# 1)Aug)08# 1)Dec)08# 1)Apr)09# 1)Aug)09# 1)Dec)09# 1)Aug)10# 1)Dec)10# 1)Apr)11# 1)Aug)11# 1)Dec)11# 1)Apr)02# 1)Apr)03# 1)Apr)04# 1)Apr)06# 1)Apr)10# 1)Apr)12# We  have  tested  our  2-­‐year  hold  period  against  other  periods,  and  shown  that  it  delivers  the  best  resultsWWW.INNOVATIONLEADERS.ORG 22  
  23. 23. The  major  porWolio  contribuGon  comes  from  some  well-­‐ known  brands  as  well  as  a  number  of  emerging  innovators   %  of  total   %  of  total   Top  5  sectors  for  contribuGon   Top  5  stocks  for  contribuGon   contribuGon   contribuGon      Consumer  Electronics   13.5   Apple   11.4      IT  Hardware   9.9   ARM   7.6      Fashion  Retail   7.1   Starwood   5.2      Aerospace   6.4   Novo  Nordisk   5.0      Automo2ve   6.0   Nintendo   4.9   #  Gmes   Most-­‐picked  stocks  since  2002   Top  returns  from  2012  stocks   %  return   picked    Starwood   11    ARM   57.1    Canon   9   Inditex   43.9    Apple   8   LuKhansa   38.8    ReckiU  Benckiser   8    Amazon   31.8    UPS   8    ICICI  Bank   31.5   Returns  to  date  on  ILF  2012  stock  picks,  purchased  on  April  1  2012  WWW.INNOVATIONLEADERS.ORG 23  
  24. 24. Other  published  assessments  of  innovaGon  performance  do   not  provide  comparable  fund  results   2.50 2.00 1.50 ILF 1.00 Business Week index 0.50 0.00 1-Apr-06 1-Jul-06 1-Oct-06 1-Jan-07 1-Apr-07 1-Jul-07 1-Oct-07 1-Jan-08 1-Apr-08 1-Jul-08 1-Oct-08 1-Jan-09 1-Apr-09 1-Jul-09 1-Oct-09 1-Jan-10 1-Apr-10 1-Jul-10 1-Oct-10 1-Jan-11 1-Apr-11 1-Jul-11 1-Oct-11 1-Jan-12 •  The  BCG  /  Business  Week  ‘Most  InnovaGve  Companies’  Rankings  has  also   highlighted  the  ‘most  innovaGve’  companies,  based  on  peer  opinion  surveys   •  Using  a  similar  2-­‐year  holding  period  for  the  top  25  of  these  companies  from  its   start  in  2006,  a  Business  Week  index  under-­‐performs  against  the  ILF  WWW.INNOVATIONLEADERS.ORG 24  
  25. 25. 4  Case  Studies  of  Sample  Companies  WWW.INNOVATIONLEADERS.ORG 25  
  26. 26. The  InnovaGon  Leaders  analysis  and  the  fund  model  show   how  different  companies  exploit  their  innovaGon  prowess   Here  we  profile  nine  of  the  companies  that  have  developed  unique  innovaGon   competences  and  used  these  to  deliver  sustained  growth  in  market  value   These  and  other  companies  are  explored  in  detail  in  our  recent  book  –  Growth  ChampionsWWW.INNOVATIONLEADERS.ORG 26  
  27. 27. Amazon  is  very  much  a  technology-­‐focused  company  using   and  sharing  capabiliGes  well  beyond  its  core  retail  business   •  Major  focus  on  business  methods  IP   •  First  profiled  in  April  2009   •  Expertly  exploiGng  customer  data   •  Since  April  2009:     •  Uniquely  adaptable  and  resilient   –  Stock  price  growth:  263%  (CAGR  41%)   •  Leveraging  assets  well  beyond  retail   –  Alpha  (vs.  sector):  3.9%   Shaded area: Stock in ILF portfolio    WWW.INNOVATIONLEADERS.ORG 27  
  28. 28. ARM  is  the  hidden  ingredient  in  many  mobile  devices  and   earns  growing  revenues  from  technology  licensing  deals     •  Design  once  license  many  Gmes  model   •  First  profiled  in  April  2009   •  Dominant  across  smart  phones   •  Since  April  2009:     •  Intellectual  property  powerhouse   –  Stock  price  growth:  814%  (CAGR  74%)   •  Over  400  strategic  partnerships   –  Alpha:  16.4%    WWW.INNOVATIONLEADERS.ORG 28  
  29. 29. ICICI’s  growth  is  being  driven  by  delivering  compeGGve   retail  products  across  a  highly  efficient  network     •  India’s  second  largest  bank     •  First  profiled  in  April  2012   •  Leveraging  technology  very  well     •  Since  April  2012:     •  CreaGng  new  plaWorms  for  its   –  Stock  price  growth:  31%  (CAGR  30%)   burgeoning  customer  base     –  Alpha:  11.3%  WWW.INNOVATIONLEADERS.ORG 29  
  30. 30. Inditex  and  its  Zara  brand  is  opening  10  new  stores  a  week   as  the  supply-­‐chain-­‐driven  customer  experience  wins  out   •  Global  leader  in  Fast  Fashion   •  First  profiled  in  April  2002   •  Fast  decision  making  culture   •  Since  April  2009:     •  Flexible  store  logisGcs   –  Stock  price  growth:  229%  (CAGR  36%)   –  Alpha:  9.7%  WWW.INNOVATIONLEADERS.ORG 30  
  31. 31. With  new  lounges,  new  seats,  new  routes  and  new  planes,   Europe’s  largest  airline  is  flying  ahead  of  the  compeGGon   •  Leading  on  premium  air  travel   •  First  profiled  in  April  2012   •  Maximizing  revenue  per  plane   •  Since  April  2012:     •  ExploiGng  network  efficiencies   –  Stock  price  growth:  39%  (CAGR  11%)   •  Now  setng  the  global  standards   –  Alpha:  0.8%  WWW.INNOVATIONLEADERS.ORG 31  
  32. 32. Having  reposiGoned  its  porWolio,  Nestle  is  focused  on   innovaGon  across  its  brands  and  emerging  market  growth   •  Leading  on  nutriGon  and  health   •  First  profiled  in  April  2002   •  17  well  focused  global  R&D  centers   •  Since  April  2007:     •  Strong  emerging  market  porWolios   –  Stock  price  growth:  26%  (CAGR  4%)   •  Reinvented  coffee  consumpGon   –  Alpha:  0.5%  WWW.INNOVATIONLEADERS.ORG 32  
  33. 33. Novo  Nordisk  is  reinvenGng  the  approach  to  chronic   healthcare  innovaGng  on  therapies  and  delivery  systems   •  Pre-­‐eminent  in  diabetes  arena   •  First  profiled  in  April  2003   •  Leaders  in  improving  drug  delivery   •  Since  April  2009:     •  Tackling  a  major  global  challenge   –  Stock  price  growth:  285%  (CAGR  34%)   •  Employing  a  diversified  set  of  tools   –  Alpha:  6.2%  WWW.INNOVATIONLEADERS.ORG 33  
  34. 34. ReckiZ  Benckiser’s  13th  year  of  constant  growth  is  driven  by   fast  incremental  innovaGon  and  power-­‐brand  expansion   •  Outpaces  P&G,  Unilever  and  Colgate   •  First  profiled  in  April  2005   •  Culture  of  incessant  innovaGon   •  Since  April  2005:     •  Double  digit  stock  price  growth     –  Stock  price  growth:  153%  (CAGR  12%)   –  Alpha:  2.4%   •  Scaling  fast  and  expanding  porWolio  WWW.INNOVATIONLEADERS.ORG 34  
  35. 35. Rolls  Royce’s  technology  leadership  and  Total  Care  business   model  makes  it  the  preferred  partner  for  many  airlines   •  Leader  in  service  business  model   •  First  profiled  in  April  2004   •  Long  term  technology  collaboraGon   •  Since  April  2004:     •  ExecuGng  5,  10  and  20  year  visions   –  Stock  price  growth:  331%  (CAGR  18%)   –  Alpha:  3.4%  WWW.INNOVATIONLEADERS.ORG 35  
  36. 36. 5  Conclusions  and  Investment  Opportunity  WWW.INNOVATIONLEADERS.ORG 36  
  37. 37. An  InnovaGon  Leaders  Fund  would  have  outperformed  all   major  indices,  even  including  exchange  rate  costs   Innova2on  Leaders  Fund  (ILF)   Back-­‐test  using  Bloomberg  data,  based  on  previously  published  stock  picks.     Compound  Annual  Growth  Rate:  14.5%,  Std  Dev:  19.7%,  Alpha:  12.1%,  Beta:  0.7   Not  accoun2ng  for  transac2on  fees  WWW.INNOVATIONLEADERS.ORG 37  
  38. 38. We  have  shown  a  direct  correlaGon  between  effecGve   innovaGon  capability  and  sustained  corporate  growth   •  The  InnovaGon  Leaders  analysis  profiles  the  most  effecGve  growth  companies   •  Looking  across  25  sectors,  it  covers  a  wide  range  of  innovaGon  strategies   •  It  has  a  longer  track  record  than  any  comparable  analysis   •  The  modeled  fund  is  based  on  two  year  hold  of  stock  of  idenGfied  companies   •  It  shows  outperformance  against  both  the  market  and  other  major  indices   •  EffecGve  innovators  are  best  at  delivering  sustained  organic  growth   •  These  growth  companies  have  also  been  shown  to  be  growth  stocks   •  Long-­‐term  sustained  growth  is  evidently  linked  to  effecGve  innovaGon  capacity  WWW.INNOVATIONLEADERS.ORG 38  
  39. 39. If  the  InnovaGon  Leaders  analysis  had  been  a  fund,  many   investors  consulted  would  have  found  it  very  compelling   •  A  published  ten  year  track  record  of  idenGfied  innovaGon  leaders   •  A  simple,  transparent,  fundamentals-­‐based  approach     •  Proven  long-­‐only  outperformance  against  key  benchmark  indices   •  A  fresh  approach  that  looks  upstream  of  the  majority  for  insight   •  Large  highly  liquid  stocks  held  across  a  diversified  sector  porWolio   Key  Data:   •  Compound  Annual  Growth  Rate:  14.5%     •  Standard  DeviaGon:  19.7%     •  Alpha:  12.1%   •  Beta:  0.7  WWW.INNOVATIONLEADERS.ORG 39  
  40. 40. Our  core  team  has  deep  experience  in  innovaGon  processes   across  mulGple  business  sectors,  and  strong  academic  Ges   Tim  Jones,  PhD   Stephen  D.  Johnston,  MBA   MaZ  Laponte   Founder,  InnovaEon  Leaders   Co-­‐Founder,  InnovaEon  Leaders  Fund   Analyst,  InnovaEon  Leaders  Fund   Co-­‐Founder,  InnovaEon  Leaders  Fund         Stephen  is  the  founder  of  innova2on   MaU  has  a  BA  in  Philosophy  and   Tim  leads  the  annual  research  of  the   consultancy  Fordcastle  and  of   Economics  from  Brown  University.   Innova2on  Leaders.  He  is  co-­‐founder  of  the   Aging2.0,  a  global  business  network   He  lives  in  New  York,  NY.   Growth  Agenda    and  Future  Agenda  -­‐  the   for  the  50+  market.  He  is  co-­‐author  of     worlds  first  open  foresight  program.  He  is   Growth  Champions  a  book  about  the     the  author  of  8  books  on  innova2on,  growth   sources  of  sustainable  growth  (Wiley   and  emerging  trends  and  regularly  delivers   2012).  He  lives  in  New  York,  NY.   talks  on  these  topics.  He  lives  in  London,  UK.           Extensive  innova2on  consul2ng  experience  with  leading  mul2na2onals                                   Academic  background      WWW.INNOVATIONLEADERS.ORG 40  
  41. 41. AN  INNOVATION  LEADERS  FUND   Modeling  the  Link  Between  Innova3on  Leadership   and  Sustained  Stock  Price  Growth   5  February  2013     Tim  Jones,  PhD  (  WWW.INNOVATIONLEADERS.ORG